My Country Is Rich In Oil, So Why Am I So Poor?

We were in the middle of a conversation on the above title in the city of Baku(on the Caspian sea), the birthplace of the oil industry, in late September 2012,when a side question came up.How much of an industrial capacity boost can a country get from Oilfield activity?

I responded by referring to a passage in Tom Bower’s The Squeeze: Oil, Money and Greed In the 21st Century, regarding the 1996 agreement between the state of Russia and a consortium led by Exxon, over the Sakhalin 1 project.

“Over 10 years”, the British author wrote, “Exxon was committed to invest nearly $4Billion and employ 70 Russian design Institutes to construct two thirds of the infrastructure in Russia itself”. Sakhalin1 involved development of oil and gas on Sakhalin Island and immediately offshore in the Okhotsk Sea, from Chayvo, Odoptu and ArkutunDagi fields.

Exxon would not have been able to make that sort of commitment in Nigeria, Angola, Algeria or any of Africa’s large hydrocarbon economies, because the capacity is simply not there, I explained to my colleagues from Reuters, Financial Times, European Energy Review,The Nationof Kenya, Egypt Independent, Daily Newsof Tanzania, Libyan Herald, Columbia Journalism Review, Forbes, Mail&Guardian of South Africa, AIT from Nigeria and scores of local journalists and NGO representatives, who were attending the conference on media and the oil industry, organized by the International Press Institute.

Many in the room nodded.

Tom Burgis of the Financial Times took me up on my conclusion that the suboptimal performance of the Nigerian educational system, over several decades, was partly culpable for the country’s inability to support the sort of commitment that Exxon agreed to in Russia. “Nigeria had a functioning educational system in the sixties”, he argued. “Some of your best brains graduated in that system”.

I couldn’t respond immediately to Burgis who, having worked in Nigeria, knew what he was talking about. We were in an interactive session, and many hands were up, their owners gesturing to talk.

There’s a lot of emphasis, nowadays on transparency in the receipt and expenditure of proceeds from oil and gas. Ghana has been cited as a country that’s grappling as much as it could with openness in hydrocarbon transactions. But you could still have widespread poverty even if you spend all the Royalty, Signature Bonuses and Profit Taxes on infrastructure. This is where I am coming from.

The local content debate in Ghana and Uganda today are fixated around how local companies can benefit in logistics and procurement areas of the business, which are just on the fringe of the play.

But the real deal is the in-situ technical activity. The more the project’s CAPEX can seep through the local economy and energise it, the more success of local content initiatives. No pre-industrial economy can take enough advantage of oil and gas activity to lift the required millions of people out of subsistence living. If oil discovery arrives your country at a time you haven’t grappled with the fundamentals of becoming an industrial economy, you’d lose the opportunity no matter your quality of governance.

Taking a cue from that passage in Bower’s book,I consulted the Sakhalin 1 project website. I don’t have access to the contract agreement that the author cited, but if we were to assume he was correct, the local content performance had been met and surpassed. “Contracts have been awarded to hundreds of Russian companies and design institutes”, the consortium claims on the website. “To date, the Russian Content of contracts awarded for the Sakhalin-1 Project is over $ 7.7 billion, or over two-thirds of the total project cost”. One line from the project website leaped at me. “When building Chayvo Oil Processing Facility, Russian company Dalelectromontazh’s team achieved one-million man-hours of safe work. In terms of an individual, that’s the equivalent of continuously working for 114 years without the slightest risk of injury”. This facility processes nothing less than 100,000 barrels of oil equivalent per day (BOEPD). And it’s just one of the many facilities that Russian companies built, INSIDE Russia, for the project.

The best that most of sub-Saharan Africa offers is “partnership with the locals” and the locals, for the large part, see only rent.

Nigeria has one of the most aggressive local content programmes on the continent. And the country has witnessed projects of comparable size with that of Sakhalin 1 in the last 10 years. (e.g Sakhalin 1’s project goal was 250,000BOPD, same figure as Agbami in deepwater Nigeria).Even so, none of the best performing local content initiatives in the Nigeria can boast only a minuscule fraction of what Sakhalin 1 has delivered for Russia in terms of jobs, industries and, more crucially, the sort of knowhow that can be used for other sectors of the economy.

An economy is a complex ecology with several units interrelating. Even with the best formal education, you’d need an industrial attitude to transform into a modern state.

In the early 70s, Nigeria forced a process of gradual de-industrialisation on itself by insisting that foreign companies give up a higher percentage of ownership of entities they founded, to Nigerians. The decline of quality in Nigeria’s educational institutions has happened in tandem with the self-inflicted de-industrialisation, brought on by the “indigenization decree”. The economy simply atrophied.

Imagine how the local content initiative in the petroleum sector would have turned out if the steel industry ever took off, a petrochemical industry actually grew on the back of Eleme and we paid more attention to thinking through and implementing the much discussed ideas about local refining of Nigerian crude oil.

“Industries, Factories are where engineering students go to learn on the job”, says Ernest Nwakpa, the Nigerian petroleum industry’s local content czar. In one moment of reflection at a recent conference, Nwakpa, a 1982(read: thirty year) graduate of Civil Engineering from Nsukka, allowed that when he was growing up, there were manufacturing and engineering companies to which a trainee engineer or technician could go for industrial training.

That has largely ceased to be the case. As Executive Secretary of the National Content Development Monitoring Board, he is using the tools at his disposal to compel, cajole, sometimes “penalize” companies to set up production sites in the country. But Nigeria has had 54 years of oil production during which those kinds of companies were encouraged to leave, or discouraged from coming in, largely because of both a culture of entitlement and more crucially, a poor industrial mindset.

Today the most well-meaning of companies will do their best, but if the country itself is hampered by poor industrial attitude, which afflicts most of sub-Saharan Africa, major investments will run through the economy like water runs through a pile of hot desertsands. Even with the best of basic social services, and the most astute transparency mechanism, its people will remain poor.